China data may put cat among global central bank doves

Global markets have been in turmoil since the start of the year, with stocks and commodities prices reeling, eroding inflation and making central banks increasingly dovish — a trend that could continue with more weak economic data.

China, a major commodities consumer and focus of much of the recent concern, releases trade data in the coming week that will be closely watched to gauge demand in the world’s second-largest economy, while U.S. retail sales figures will give clues on the state of consumer confidence there.

Oil prices have tumbled 70 percent since mid-2014, driving down inflation and adding to expectations that central banks will be forced to maintain or even ease further their already ultra-loose monetary policies.

Late last month the Bank of Japan unexpectedly took the plunge into negative interest rates, following in the wake of the European Central Bank, which will more than likely shave another 10 basis points off its own sub-zero deposit rate in March.

The U.S. Federal Reserve, meanwhile, is looking increasingly unsure about when it will next raise rates, and economists in Reuters polls have pushed back expectations for the first Bank of England hike by six months in the space of three weeks.

“While we don’t think that the world’s economy is set to fall off a cliff, the problem is that there is a sizeable output gap, with significant structural excesses in the emerging economies, particularly China, and in commodity-producing countries,” said Hiroshi Shiraishi at BNP Paribas.

China’s January exports are expected to have dropped for the seventh month running, with factories still battling falling prices. But a forecast jump in bank lending may underscore Beijing’s bid to put a floor under the slowing economy.

A raft of economic data in the next two weeks will be closely scrutinized for signs that the slowdown in the world’s second-largest economy may have bottomed out. Read more